Some energy-intensive companies are being forced to reduce production due to record high natural gas prices. This trend could cause disruptions in global supply chains in certain sectors, such as food, and could lead to higher costs being passed onto their customers.
Due to rising energy prices, some companies, including steel producers, fertiliser makers and glass manufacturers, had to stop or reduce production in Europe. Two of the largest European fertiliser producers, which announced they would reduce production in Europe, are included in this group. On Tuesday, the UK announced that it would provide state support to one company to resume production of byproduct carbon dioxide. This is used in food production to avoid a supply crisis.
In recent months, natural gas prices have risen dramatically around the world. This is due to a combination factors, including increased demand from Asia, particularly after the post-pandemic recovery, low gas inventories, and tighter-than usual gas supplies from Russia.
The European gas prices have increased more than 250% in the past year, while Asia has experienced a 175% increase in gas prices since January. Prices in the United States have risen to multi-year highs, and are now about twice the level they were at the beginning of the year. Gas-fired power plants have seen their electricity prices rise sharply.
Industrial Energy Consumers of America is a trade group representing chemical and food manufacturers. They have asked the U.S. Department of Energy not to allow liquefied natural-gas producers to export gas from the country in order to keep energy costs down.
Additional gas supplies could help to ease the pressure. Norway has allowed increased gas exports. With the approval of Germany’s energy regulator, more supply could flow from Russia before the end of this year. The United States has criticised the pipeline project, claiming that it will increase Europe’s dependence on Russian energy supplies.
PRODUCTION DISRUPTIONS
Europe has been feeling the effects of these rising gas prices, with its gas stocks much lower than normal heading into winter. Norway’s Yara International ASA (one of the largest fertilizer makers in the world) announced Friday that it would reduce its European ammonia production by 40% due to rising gas prices. This was after CF Industries Holdings Inc, a U.S.-based fertilizer maker, said that high gas prices had forced it to close two of its British plants. Natural gas is the main cost input for nitrogen-based chemicals, fertilizers, and other products.
Svein Tore Hosether, Yara’s chief executive said Monday to Reuters that the company was importing ammonia from other production facilities, including Australia and the United States. He said that instead of using European gas, the company was using gas from other parts to make the product and then bring it to Europe.
Some industries are asking governments to intervene for them. These pleas are coming as some countries have taken action to protect consumers from rising energy bills, like Spain last week, which approved a package that included price caps.
The food industry is one of those who are asking for assistance after a shortage in carbon dioxide (CO2) due to the suspension of production at some fertiliser plants. To extend shelf life, stun animals before they are slaughtered and put fizz in soft drinks like beer and soft drinks, CO2 is used to vacuum pack food products.
The UK’s meat processors warned that they would run out of CO2 in five days. This forced them to stop production. Soft drink manufacturers who depend on the gas for carbonated drinks said that supplies were running low.
The British government announced Tuesday that it had reached a three-week agreement with CF Industries to allow the American company to resume production of c.